Skip to main content

View Diary: Bank Run in Cyprus, Will it Spread to Southern Europe? (322 comments)

Comment Preferences

  •  They don't wonder why (12+ / 0-)

    economies are slowing down. Bold authoritarian moves like this are entirely deliberate and designed to achieve particular results - which have little or nothing to do with the slightly more than 1.1 million citizens of Cyprus.

    It's the EU/ECB forcing government default on the Cypriot banking system's version of FDIC, thereby sending out a clear threat to the rest of the EU states that their citizens' savings are now subject to arbitrary confiscation as well. Obviously, this is something the scheme is intended to generate. For whatever nefarious reason, given that the Euro is as much a fiat currency as the dollar, and the uninsured depositors could be dinged if need be for bailout funds. Since so much of those uninsured deposits in Cypriot banks are ill-gotten gains from organized crime in Russia and the Ukraine, who's going to complain?

    By announcing it ahead of time a run was/is inevitable. Nothing else could have resulted from a move like this. Per a Reuters analysis in The New York Times today:

    Even so, citizens in the rest of the euro zone now know that if push comes to shove, their insured deposits could be grabbed too.
    This is a breach of contract on the deposit insurance guarantee that allowed EU banks to avoid full reserve banking in the first place, and it's a dangerous precedent. Described in Forbes yesterday:
    ...Under the system until yesterday all depositors in Cypriot banks were insured up to the value of €100,000 with any one bank. Today that solemn and governmental promise has been shown to be false. And not even the European Union nor the European Central Bank are going to make them stick to it. Indeed, very much the other way around. The EU and ECB are insisting that the Cyprus authorities breach this deposit insurance provision.
    The Forbes article ends with a note of alarm:
    I certainly wouldn’t want to be a central banker trying to deal with a banking liquidity crisis now that it’s been shown that government promises aren’t worth the paper they’re written on, that’s for sure.

    It really does strike me as an extraordinary decision, one that will have unpredictable long-term effects.

    Yes, the decision is extraordinary, but its effects are not in the least bit "unpredictable." They are entirely predictable, and THAT is the point.

    Things like this never happen by 'accident', you know.

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site